CBK expected to keep policy rate at 9pc as inflation fears subside

The Central Bank of Kenya (CBK) is widely tipped to leave its policy rate unchanged when the rate setting committee meets on Monday, even as banks continue rationing credit.

The meeting comes against the backdrop of sustained sentiment by Treasury and the regulator that Kenya’s decision to peg interest rate cap on its base lending rate has constricted private sector credit.

The Finance and National Planning Committee has however rejected Treasury’s request to scrap the cap on commercial interest rates and want the law rewritten “more clearly.”

During the last sitting on July 24, the MPC retained the signal rate at nine percent.

Analysts this week said they expect the Monetary Policy Committee (MPC) to hold the rate due to the adverse impact of the capping of rates on the credit market.

“We expect no change to the CBR,” said Stanbic Bank regional economist for East Africa Jibran Qureshi. “We suspect the MPC will be closely watching the developments of the Finance Bill and the interest rate cap.”

Commercial Bank of Africa (CBA) forecast that the rate will remain unchanged.

“Inflation and growth suggests that the current stance may still be appropriate,” said the lender in a research note.

Inflation eased to five percent in August from July’s 6.3 percent, while the shilling has traded in the 103.00-104.00 level to the dollar in the past one month.

In the July meeting the MPC said it saw inflation expectations were within the target range and the economy was operating close to its potential.

The MPC also noted that private sector credit had grown by 5.2 per cent in the year to June, compared to 4.4 per cent in May.

While the growth to June was the highest since the rate cap came into effect in August 2016, it remains well below the ideal rate of 12-15 per cent that is deemed optimal to support economic development.

A number of experts, including the IMF, have said that the rate cap has hindered monetary policy operations at CBK.